Microsoft Leverages AI to Strengthen Cloud Business, Alphabet Struggles to Find Positive Outcome – News18
Alphabet’s shares fell 7% in after hours trading on Tuesday. Microsoft’s rose 5%.
Googleparent Alphabet’s cloud business suffered as longtime rival Microsoft’s took off in the September quarter, demonstrating early signs that the Windows maker’s investment in artificial intelligence was paying off.
Google-parent Alphabet’s cloud business suffered as long-time rival Microsoft’s took off in the September quarter, demonstrating early signs that the Windows maker’s investment in artificial intelligence was paying off.
Alphabet’s shares fell 7% in after hours trading on Tuesday. Microsoft’s rose 5%.
The drop in Alphabet’s shares, despite it beating Wall Street estimates for overall profit and sales, showed investors wanted it to deliver gains in artificial intelligence and demonstrate it remained competitive against Microsoft’s Azure and Amazon.com’s AWS cloud businesses.
“While a single quarter doesn’t a major trend make, this quarter’s cloud results… suggest that Azure is gaining share against its competition,” said Bob O’Donnell, chief analyst at TECHnalysis Research.
“In addition, it could be that Microsoft’s very strong messaging on their Copilots and GenAI technology is getting companies to consider them in a more serious way.”
Microsoft has emerged as an AI frontrunner, largely due to its substantial investment into startup OpenAI, the maker of hit product generative AI chatbot ChatGPT.
Microsoft has been integrating OpenAI’s technology across its product catalog, from its search engine Bing to its workplace productivity software suite Microsoft 365 and software coding platform Github.
Alphabet too has deployed AI in dozens of its products such as its flagship Pixel phones and more recently experimented with adding generative AI to its search engine. Earlier this year, the company launched its generative AI chatbot called Bard that competes with ChatGPT.
Microsoft’s chief financial officer Amy Hood said on a conference call with analysts that higher-than-expected AI consumption was responsible for a 3 percentage point boost to its cloud business.
Alphabet has prioritized snaring AI startups as customers for its cloud division, while Microsoft has relied on its existing relationships to secure larger customers. That strategy reflected in the results, said Krishna Chintalapalli, portfolio manager at Parnassus Investments, an investor in Alphabet and Microsoft.
AZURE DAZZLES
At Microsoft, revenue from its Intelligent Cloud unit, which houses the Azure cloud-computing platform, grew to $24.3 billion, compared with analysts’ estimate of $23.49 billion, LSEG data showed. Azure revenue rose 29%, higher than a 26.2% growth estimate from market research firm Visible Alpha.
RBC Capital Markets has previously estimated that Microsoft will clock over $3 billion in revenue from generative AI offerings this fiscal year.
In contrast, revenue at Google’s cloud business rose 22.5% to $8.41 billion in the quarter ended Sept 30, its slowest growth in at least 11 quarters. That lagged an average Wall Street estimate of $8.62 billion.
Microsoft has promised to be aggressive in spending on AI to meet demand. The company said on Tuesday that fiscal first-quarter capital expenditures were $11.2 billion, up from $10.7 billion in the previous quarter, which itself was the biggest spend since at least fiscal 2016.
Microsoft executives say that figure is likely to grow each quarter this fiscal year, putting the company on track to spend more than $44 billion.
Google’s capex grew 10.7% to $8.06 billion in the July-September period, from a year earlier.
“For Microsoft, these are absolutely phenomenal numbers, factoring in a cautious macro-economic outlook and a choppy IT spending environment. Quite surprising to see strong growth reacceleration in the Azure Cloud segment, which is clearly driven by AI-as-a-service related demand,” said Global X analyst Tejas Dessai.
Amazon is scheduled to report quarterly results on Thursday, and analysts expect AWS to post a rise 12.4% in sales. Amazon shares fell 1.4% in post market trading on Tuesday.
(This story has not been edited by News18 staff and is published from a syndicated news agency feed – Reuters)
In the September quarter, Microsoft’s cloud business, powered by its investment in artificial intelligence, experienced significant growth. Meanwhile, Alphabet’s cloud business struggled to keep up with Microsoft, leading to a 7% decline in Alphabet’s shares. Despite Alphabet surpassing Wall Street estimates for profit and sales, investors were looking for stronger performance in AI and competition against Microsoft’s Azure and Amazon’s AWS cloud businesses.
Microsoft has become a frontrunner in AI due to its substantial investment in OpenAI, the creator of the popular AI chatbot ChatGPT. The company has integrated OpenAI’s technology across its product catalog, including Bing, Microsoft 365, and Github. On the other hand, Alphabet has also deployed AI in various products, such as Pixel phones and its search engine.
The growth of Microsoft’s Intelligent Cloud unit, which includes Azure, exceeded expectations with a 29% increase in revenue. In contrast, Google’s cloud business experienced its slowest growth in 11 quarters, with a 22.5% rise in revenue. Microsoft’s commitment to AI is reflected in its increased spending, with capital expenditures reaching $11.2 billion in the first quarter.
While Microsoft’s success in the cloud business demonstrates the positive outcome of its AI investment, Alphabet faces the challenge of catching up and proving its competitiveness in the market.
Perspective: The race between tech giants in the cloud business is intensifying, with AI playing a crucial role in determining success. Microsoft’s strategic investment and integration of AI technologies are paying off, propelling its cloud business forward. As companies increasingly rely on the cloud for their operations, the ability to provide robust AI services will be the key differentiator. Alphabet needs to step up its game and demonstrate its capability to compete against Microsoft and other major players in the cloud industry.
